Wednesday, 6 February 2013

Early in 2010 I became convinced that indices based on fundamental accounting numbers made more sense as an ETF investment strategy than the traditional indices based on market capitalization. The research seemed convincing but would real world investing see the same results I asked myself. To try answering the question, in June 2010 I created two parallel portfolios with the same initial pretend capital of $100,000 and the same asset class breakdown to pit ETFs based on each type of index in a head to head battle.

August 2011 - Cap-weight portfolio ahead by 0.4%; both portfolios up about 10%

March 2012 - Cap-weight portfolio ahead by 0.07%; both are up 16% in total

Today (see bottom of this blog page for the Google spreadsheet with details of the current portfolio):

Cap-weight still ahead in total by a slight 0.5%

Both have gained over 22% since inception

Every asset class / ETF holding has made gains

Asset class gains are unequal as expected but none has yet gone beyond the automatic rebalancing rule of a quarter deviation over/under its initial share (e.g. a 5% holding going above 6.25% or below 3.75% of the total portfolio)

In some classes the cap-weight ETF is ahead, while in others it is the fundamental index ETF